Debtor Asks for Commercial Rent Relief Due to COVID-19 Shutdowns
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We have previously written about cases in which commercial tenants tried to avoid paying rent, citing the COVID-19 pandemic and the related shutdowns. 

In a first case, in a decision that made headlines, a Quebec court issued a ruling in which it excused a commercial tenant from paying rent during the closure of its business due to the COVID-19 pandemic.

In a second case, an Ontario court came to a different conclusion, ruling that the commercial tenant was not relieved from its obligation to pay rent despite the COVID-19 pandemic and the government shutdowns.

More recently, a Quebec court faced a similar issue, in which a debtor applied to be relieved of its rent obligations due to COVID-19 shutdowns.

Company Stores Shut Down Due to COVID-19 Pandemic

The company in the recent Quebec case operated over 300 retail stores in Canada and the U.S.  However, its business was severely impacted by the COVID-19 pandemic and the government-imposed restrictions which followed.   

As a result, the company filed an Application for an Initial Order and an Amended and Restated Initial Order for the purpose of pursuing a restructuring of its business under the Companies’ Creditors Arrangement Act (the “CCAA”).

The court issued an Initial Order, which imposed a stay to prevent the company’s creditors from bringing or continuing proceedings or enforcement orders against it or its assets. The stay period had been extended several times and it remained in force.  

The Initial Order also provided that no person who supplied goods, services or the “use of leased property” to the company after the Initial Order, could be prohibited from requiring immediate payment.  

On November 11, 2020, the government of Manitoba issued an order closing non-essential businesses to the public in order to stem the rise in cases of COVID-19 in the province. The company’s Manitoba stores were covered by the Manitoba Order and had been closed to the public since November 11, 2020.  

On November 22, 2020, the government of Ontario also closed non-essential businesses to the public in several areas of the province.  Certain of the company’s Ontario stores were covered by the Ontario Order and had been closed to the public since November 23, 2020.  

The company thus claimed that so long as the Manitoba and Ontario Orders were in place, it was not “using” the premises it leases in those provinces and post-filing rent was neither due nor payable.  

The company applied to the court, seeking a declaration that where it was unable to operate a store in leased premises as a result of a federal, provincial, state, county or city decree, regulation or order, and it did not use the leased premises as a result, no rent would be due or payable during the lockdown period. The company’s application was based on section 11 of the CCAA, which gives the court discretion to make any order that it considers appropriate in the circumstances, subject to the restrictions set out in the Act. 

The company’s application was contested by the landlords of its Manitoba and Ontario Stores, citing s. 11.01(a) of the CCAA, which reads:

Rights of suppliers

11.01 No order made under section 11 or 11.02 has the effect of

(a) prohibiting a person from requiring immediate payment for goods, services, use of leased or licensed property or other valuable consideration provided after the order is made […].

In response, the company argued that for a debtor to be making “use” of property within the meaning of section 11.01 (a) of the CCAA, it must necessarily be carrying on the activity for which the property was leased, which was not its case due to the government shutdowns.  

Court Rejects Company’s Application

The court rejected the company’s argument relating to its use of the leased premises, stating:

“The Court does not agree with [the company] that for a debtor to be making “use” of property within the meaning of section 11.01 (a) of the CCAA, it must necessarily be carrying on the activity for which the property was leased. If that were the case, a debtor could choose to temporarily shut down operations in leased premises and the landlord would not have the right to insist on immediate payment. This could not have been what Parliament intended. 

While there is no doubt that [the company’s]’s ability to operate the Manitoba and Ontario Stores is severely limited by the COVID Restrictions, it is still using those premises….[…]

[T]he Court agrees with the Landlords that under the terms of the leases, [the company] is not relieved of the obligation to pay rent even if a government regulation or a situation of force majeure prevents one of the parties from fulfilling its obligations.”

As a result, the court refused the company’s application.

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Baker & Company has adopted all of the COVID-19 safety precautions and vulnerable employees have been invited to work from home. We are fully operational and continue to work on client assignments. Where possible, meetings are being held via video link or by telephone conference.

At Baker & Company in Toronto, our real estate lawyers take the time to speak with you and understand your unique needs in order to guide you through your real estate matter, whether commercial or residential. We rely on our broad base of experience and expertise to provide exceptional legal advice and risk management in a variety of leasing issues. Call us at 416-777-0100 or contact us online for a consultation.

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